Weekly Thoughts

Weekly Thoughts 22 March 2019

A friend of ours recently had a mild stroke. She is younger than us. She’s OK, but had no insured benefits to help her through it.

A friend and motorbike riding mate – we’ve summited Sani Pass twice together – recently injured himself quite badly while playing indoor hockey. Chasing the ball down the ‘field’, the wall arrived before he could get the flaps down. He hit it at speed. He has recovered, to an extent, but says he’s not sure he’ll ever be 100% again. He has temporary and permanent disability benefits, so financially he should cope.

Then I have a young client who is waiting for a kidney transplant. He has no kidneys at the moment. Does dialysis couple of times a week. Thank goodness his dad and I put some impairment benefits on the sons when they were teenagers. The 5 million has proved crucial in providing income and pay for expenses.

We don’t know when life’s horrible things will arrive upon us. There is no fairness in this game. We just need to know that we have a basic plan that will help.

Weekly Thoughts 8 March 2019

Last week was the week to take down your car’s odometer reading if you run a log book for SARS and it was the week to have paid your provisional tax.

Then on Thursday last week I attended a compliance training morning with a small group of advisers. Our compliance officer took us through what happens when the Financial Sector Conduct Authority – previously known as the Financial Services Board – comes to do an onsite inspection of our businesses. Something none of us look forward to, when it inevitably happens one day.

The one thing that stood out from the morning, was how the requirements on us to collect updated FICA from our clients was now going to be more …… bothersome. From having to collect updated info once a year, we now have to collect updated documents every time a client does new business with us, but still with a minimum of once a year. So unfortunately, expect me to be more of a nag around this issue.

Weekly Thoughts 25 January 2019

For Christmas my family decided it would be a nice idea to buy a family present in the form of one of those bluetooth speakers that looks like a mini barrel through which you play your playlist on your phone. I have a very old sound system that my son once asked if that was what they called a Hi Fi. I built up this Hi Fi nearly 30 years ago – buying the separate speakers, building the correct size boxes, buying the best-at-the-time Technics 80 watts per channel amplifier together with an AIWA double cassette tape deck and a Technics CD player. All this made for a very serious Hi Fi at the time. It still works fine, although some speakers need replacing. Back to the family’s Christmas present.

This bluetooth speaker was advertised on the web and in the usual far-too-many supplements in the newspaper paper at R399.00. But the advert said you’d save R100 when buying it at R399.00. Anyway, we bought this thing. I paid the R399.00 by credit card and we wrapped it and opened it again on Christmas Day. The issue is, after spending R399, I have as yet not noticed the R100 that the advert said I’d save being deposited (back) into my bank account.

It brings me to the point that in my opinion, these forms of advertising are dangerous and should not be allowed. I think there must be a huge number of people that buy more than they would have just because they think they are saving. They’ll think they should buy that thing they want because they’re saving on what the price usually is – although very seldom would they have seen the price being listed as any other amount.

In this example, we only save if we don’t spend.  We shouldn’t buy something just because it is advertised as less.  I think adverts should be allowed to say that the price is at a discount at R399, not that you will save R100.

Weekly Thoughts 18 January 2019

All my clients have survived the silly season, which is good. I know this based on the principle of no news is good news. What always makes this significant at this time of year, is when one considers the number of road deaths during the festive season. One news report puts it at over 1600. That would be about 5 airliners going down during the same period. As I get older I get more and more acutely aware (probably bad English) of road safety when travelling. And my own discipline when driving.

Weekly Thoughts 21 Dec 2018

In my last newsletter – 3 weeks ago (shocking) – I wrote about short-termism, a topic from a brochure received at an investment presentation.

The other aspect I wanted to write about from that brochure, was around some interesting information on a few global companies. Companies that will last, last through global Trade Wars, Trumpism, Brexit, the Yellow Shirts…. Etc. Here are a couple of examples given to us:

Colgate-Palmolive. More than half of the world’s population buy Colgate products. Go look in your house, you’ll have them. An interesting thing here, is that we were told that in India most people only brush their teeth every three days. So imagine the growth potential in sales when these “most people” can go to every two days. Colgate is a massive player in the Indian and Chinese market.

Nestle, with over 400 factories in 86 countries, owns over 2000 brands and sells over a billion products in the world, every day.

L’Oréal, the world’s largest cosmetics company, expects to add one billion new customers over the next 10 years, due to urbanization and more and more women entering the workforce.

None of those political interference problems mentioned above are going to stop someone buying the toothpaste they need or the food they need or the beauty products they want. So profits and dividends will continue.

Weekly Thoughts 30 November 2018

While scrounging around in articles I keep to maybe use for these newsletters, I found an investment brochure from October that I had been keeping after attending a fund manager presentation. I had highlighted only a couple of pages and points to share.

The first is a term called short-termism. Warren Buffet suggested that there was a danger around short-termism. A comment from Donald Trump was that when he asked some top business leaders what would make business better, or easier, they said “Stop quarterly reporting and go to a six month system. It would save money.” I personally think unit trust investment reporting should do the same.

A measure of one of the stock markets vs. the average investor over 10 years to end 2014, showed that the investor who was making their own switches based on their own opinions and observations, created returns for themselves that were almost 50% lower than the market average. This is because they look too short and then try to time and switch their investments themselves. What is needed? Good selections in the beginning, for the right reasons, then leave it alone. Check once a year that your investment is still in your name, look at its value, check that the management company has remained sound, and leave it alone.

Thoughts from another page next time.

Weekly Thoughts 23 November 2018

Today is that day in the year (it’s become a few days now) where loads of consumers go shopping for things they don’t really need and might not have bought, under the pretence of saving. We don’t save when we spend money, we save when we don’t spend it.

The only thing I would need, not want, is clothing. I don’t like shopping for clothes at the best of times and am not very good at it. I also don’t do queues and crowds very well. So I guess I won’t be doing the Black Friday thing. But companies will make money, which is good. They won’t sell everything at a loss, so the listed companies that you and I have in our unit trust funds, will still make good profits.

For most shoppers however, they won’t be spending their own money anyway. They’ll be buying on credit. So the Banks make money too. Who loses….?

Weekly Thoughts 16 November 2018

A couple of weeks ago I wrote a bit of a technical ‘information’ email about how unit trusts funds hold some cash. I am writing today about what are called ‘tracker funds’, unit trust funds that ‘track’ certain areas of the stock market/s. Names such as Satrix, db x-tracker, eRafi and ETFs are examples of some. These funds are weighted to hold or represent a section of the stock market, whether it be ours or overseas. The Satrix Top 40 fund, for example, has to hold the 40 largest companies on the Johannesburg Stock Exchange. The guys who manage this fund may not choose to not hold them.

So if a ‘Steinhof’ is one of these top 40 then they must hold it. And if such a company’s value might suddenly fall, they must continue to hold it while it continues to make up the Top 40. They may not sell it all on the day that they hear bad stories. Only once it disappears out of the Top 40 may they sell the rest. So in this case the fund will have to absorb the total loss of value up to this point.

An ‘active manager’ however, such as an Allan Gray or Coronation or Marriott, can choose to sell it immediately when it begins to fall or when the bad news comes out. Thus hopefully keeping some of the profits that might have already been made. Likewise an active manager can choose to start buying a small or new company, if they believe it’s of really good value and will go far. But the Satrix Top 40 fund cannot do that. This new company has to first become one of the largest 40 companies on the Stock Market before they can buy it. And by then it might be too late to make any decent profits out of it.

The negatives are that the active manager funds have higher fees, because there are more people involved – analysts and managers to pay salaries to. Whereas a tracker fund is simply a reactive process of following a given measurement, meaning far fewer people needed for decisions and hence lower fees. The correct comparison to tracker funds, which focus mainly on capital growth, is capital growth vs. capital growth, not income vs. capital growth.

So it’s a bet on getting a higher return through a personal and intellectual intervention in the management of your money vs. a reactive administration function that doesn’t require the same thought and thus costs less and therefore might do better. Many managed unit trust funds do not beat the returns of index funds. But some do – just have to find them. I do however, use a couple of tracker funds.

Weekly Thoughts 19 October 2018

The thought came upon me the other day to write a bit of a technical and learning newsletter, on a couple of issues of how unit trust funds are run.

Every fund will have a minimum of about 3% in cash in it, possibly as much as 5%. This means that if you have your money in Allan Gray’s equity fund, for example, or Marriott’s Dividend Growth fund, these funds won’t have 100% in shares on the stock market. They must have a bit of cash in them. This is because if you want some money out of a unit trust fund, the management company has to be able to give it to you within two or three days, whereas if you hold the shares directly on the stock market, you, or a stock broker, has to find a buyer first in order to dispose of your shares and get your cash out.

Furthermore, a fund manager of a unit trust fund will usually be paying your withdrawal out of this cash portion held, and then might top up the cash portion again with the next person’s deposit, meaning they have not had to trade in the fund at all. This could go on for many days or weeks and can be a good thing. They don’t have to sell when they don’t want to, and then sometimes they might also be battling to find shares with value to buy, hence if inflows are able to top up the cash portion, they don’t have to compromise the fund as a whole.

If the cash portion gets too low, they will sell off some shares to bring it back up again. They also have to be careful not to dilute the fund, meaning begin to hold more cash than they should be.

I regularly enjoy digging into the technicalities of the management of investments. Often learnt though, through direct discussions with asset managers.

Weekly Thoughts 21 September 2018

A week ago – Thursday, Friday and over last weekend – I was down and out with very bad flu or whatever it was.  So I put in for some sick leave and spent some time feeling sorry for myself, working from my bed or the TV coach over the weekend.  I didn’t even go off to the annual Hilton College Arts festival – the girls went every day without me.

In times like this one often gets bored and begins to watch or read things you might not usually read.  And so it was that I got stuck into reading some emails that my medical aid – Genesis – has recently been sending out to members.  Articles they have called ordinary explanations of important stuff.  The one I read this particular day was on Scheme Exclusions.  Now I am someone who buys something and never reads the instruction manual.  It must just work.  So with medical aid I would read the upfront info on the benefits you get, but I’ve never spent time finding what they might exclude me on.  The results were quite thought provoking, and maybe very important to know.  The article told me to go and read further in the Scheme Rules, annexure C, which I found frustrating to find.  This resulted in a grumpy email from me to Genesis which further resulted in a personal phone call back with a very helpful lady guiding me through the website.  Here are the exclusions that stood out to me.  There are more – anyone thinking of cosmetic surgery, for example, you need to go read that bit.  But this is not on my agenda, so I skipped over it.  The following things I found interesting for one reason or another.

In short, if I have injuries arising from or out of the use of the following, I might get no medical aid care, even in hospital:

  • quad bikes  (always told my son we don’t ride these)
  • motorized speed contests  (does this include me racing my mate down the streets in the middle of the night…?  Maybe rather just don’t do it)
  • alcohol or drug abuse  (includes an injury from driving under the influence)
  • breach of the law
  • willful self-inflicted injuries
  • attempted suicide
  • injuries sustained from hazardous hobbies where normal safety procedures were not followed
  • participation in civil commotion  (so this potentially could have included the inconsiderate people who blocked highways in my province last month to protest the fuel price.  Then they get injured…?)

I might be thinking that if I need to go to hospital, all is covered.  I then find out when the R300 000 bill comes, that they won’t pay because I broke the law.  Does this include me having an accident while driving and talking on a cell phone?  Afterall, I breached the law.